Restless Contracting

Can Urgun
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Can Urgun: Princeton University

Working Papers from Princeton University. Economics Department.

Abstract: I explore how a principal dynamically chooses among multiple agents to utilize for production. The principal chooses at most one agent to utilize in every period affecting the states of the agents. A utilized agent changes its state because it is utilized, but the nonutilized agents do not remain at rest: they also change their state. The analysis requires a novel methodological approach: the agency problem that the principal faces with each agent is shown to be an appropriately designed restless bandit, creating a multiarmed restless bandit. The optimal contract is characterized by an index rule for the restless bandit.

Keywords: Relational Contracts; Restless Bandits; Dynamic Contracting (search for similar items in EconPapers)
JEL-codes: D21 D86 L14 L24 (search for similar items in EconPapers)
Date: 2021-04
New Economics Papers: this item is included in nep-hrm and nep-mic
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Persistent link: https://EconPapers.repec.org/RePEc:pri:econom:2021-88

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